-
NZ $100 notes - Source: ONE News -
Watch Video
-
Related
While today's increase in interest rates might not seem like much of a positive sign for floating mortage holders, it is an important step in New Zealand's recovery from recession and the impacts of the global financial crisis.
At some point New Zealand had to start unwinding the extraordinary level of support which record low interest rates have been giving our fragile economy.
Basically the Reserve Bank has decided that our economic recovery is now self-sustaining and broad-based enough to cope more on its own.
Once again Bollard has followed on his earlier signals to the market and delievered a statement with few surprises . It's now up to the retail banks to respond. They are most likely to - at the very least - increase their floating rates slightly.
It has based this assumption on the fact that New Zealand is now enjoying strong export returns due to good commodity prices, and that we have good business confidence and falling unemployment figures.
And the fact that we can start removing stimulus now ahead of many other Western nations like the US and UK is a sign of the relative strength of the New Zealand economy.
However, it pays to remember the Australians have already hiked rates a number of times this year.
The one factor that could have stayed Dr Bollard's hand was the financial crisis in Europe, however he does not believe that situation has turned into an fully fledged economic crisis which would curb world growth.
He says the main impact for New Zealand has just been an increase in funding costs for retail banks on international markets and at this stage the trade impact of the euro zone crisis is minimal for New Zealand.
This is especially so given our increased trade with Asia lately.
However once again he has given himself wriggle room on future interest rate hikes.
Quite clearly there are going to be more. According to the 90-day bank bill track in the Monetary Policy Statement today, the OCR could be at around 4.5% by this time next year and 5.75% by June 2012.
This suggests that we could reach a neutral interest rate (that neither stimulates or contracts) that is lower than previous cycles.
However he is suggesting a lot will depend on the economic conditions both here and abroad. So the rate at which we get to those levels could vary.
If for example Europe's meltdown turns into a global meltdown, then he could easily pause and delay more hikes for some time.
Equally, if the one-off spike in inflation next year due to GST and the ETS leads to entrenched inflation of around 6% then the governor may have to get tougher and hike rates faster in bigger steps.
In fact Bollard was quite explicit today in warning workers and employers not to let the spike in inflation influence them in their price and wage setting thinking for next year.
He will also be watching for any return to the spending and consuming habits of the boom, which, to date at least, Kiwis seem to have given up.
Once again Bollard has followed on his earlier signals to the market and delievered a statement with few surprises. It's now up to the retail banks to respond. They are most likely to - at the very least - increase their floating rates slightly.
Read more of Corin Dann's articles
Will you be affected by an interest rates rise? What do you think about the Reserve Bank raising the OCR? Comment below.
Add a Comment:
Post new commentlance_uk said on 2010-06-11 @ 19:09 NZDT: Report abusive post
Bollard cares nothing for ordinary New Zealanders, and is hell bent on ruining us all, we are all still trying to recover from the legacy of an excessively high OCR for years, which was plundered by offshore pension funds, every New Zealander has had to pay for that, and some still are, those poor sods on 9.3% fixed mortgages. When will the idiot realise we dont have spare cash to invest in shares or any thing else for that matter.
paulrichard said on 2010-06-11 @ 17:28 NZDT: Report abusive post
Corin, Do you know anything about economics or what is happening in the real world? Kel Sanderson is absolutely right. There is a great deal of hype about the recovery but its really not happening to the masses yet. I speak to many owners of small to medium sized business and all are saying the same. There business is going nowhere at the moment. They believe its bottomed out but are still to see any sign of recovery. Govt charges & increased interest rates point to double dip recession.
Noddy samurai said on 2010-06-11 @ 16:44 NZDT: Report abusive post
It just makes me sad to see our lives are left in such silly peoples hands. God helps us, with GST going up A.C.C going up the price of power going up and now Interest rates increasing. Has some body got bored ?!. Wake up we're all suffering out here.
spurs1 said on 2010-06-11 @ 15:06 NZDT: Report abusive post
My concern is that there has been really no wage increases over the last two years so Bollard saying we are prpepared I dont think the economy is. The average worker in NZ has probably seen thier wages go backward in terms of inflation etc so why pour on more misery to hardworking people. The UK has recently kept the rate at 0.5% why do we need to increase now. It makes no sense in people saying it recognises recovery it does not to the average man on the street.
skedz said on 2010-06-11 @ 12:21 NZDT: Report abusive post
I agree with Kel Sanderson. I think this is too early. I deal with small to medium sized businesses every day and they are still very much feeling the pinch. The economic recovery may have started but on a ground level basis it is still very shaky and there are the solid results for businesses yet.